Foundations of Modern Macroeconomics

Macroeconomics is defined as the branch of economics that studies large-scale economic phenomena, particularly inflation, unemployment, and economic growth. The prefix macro means large, indicates that it has something to do with the larger side of economics. The main problems in macroeconomics include unemployment causes, inflation, and the living standards changes. Many people think Macroeconomics and Microeconomics are separate, but they are really not. Macroeconomics phenomena inflation represents the results of millions of choices about the goods and services prices. Also, macroeconomics initially resides on a foundation of microeconomics.

Macroeconomics affect our daily lives day by day. For example, we all suffer from inflation every day. The prices of consumer goods increase faster than wages do. Therefore, if the rise in prices is not remunerated by an increase in wages, then people will find it a lot harder to make ends meet. However, if wages rise to fast, employers will sell their products for more money so inflation will continue to cycle.

Another thing that affects our daily lives is unemployment. When we enter the workforce, and our jobs are not in accordance with our education levels, this rate becomes continual. This limits the growth possibility of the economy. Then, the pressure on the wages and their price levels leads to a loss of competitiveness.

Interest rate also affects us. Interest is the price of the money or amount paid by someone who requests the availability of an amount as a form of a credit, loan, or financial obligation. Credit institutions apply passive interest.

Passive interest is paid for taking the money and active interest is when it is charged by lending it. This affects us by being accustomed to lower interest rates. This outcome could change if the Federal Reserve changes their plan. The Federal Reserve (FED) is responsible to regulate money in the United States.

Lastly, another thing that affects us daily is the exchange rate. The exchange rate is the price of a currency that is measured in units. The exchange rate alters between the difference of the inflation rates and interest rates. When the United States currency is lessened, the goods that our country imports overseas become way more expensive. It becomes more expensive to buy and produce. However, this does help the other companies to be more competitive because their products are cheaper sold abroad.

There are three basic economic questions and these are:

  • What to Produce?
  • How to Produce?
  • For whom to Produce?

Sources are scarce and society must determine what goods to produce and how much of it they need to produce. This is where the question “What to produce?” comes in.

Secondly, the question “How to produce?” companies the ways of production that are used to produce goods and services. Fast and efficient ways of production must be employed.

Lastly, once a society chooses a point on the curve, it will have both goods and services that are available. It must decide how to distribute these among everyone.

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